In brief: The Supreme Court of Queensland has ordered that an objector to an external administrator's remuneration application pay the administrator's costs of responding to the objections.

This decision, which will be welcomed by external administrators, appears to be the first time such an order has been made in the insolvency jurisdiction.

Disclaimer of interest: Colin Biggers & Paisley acted for the Provisional Liqudiator in Michaela Manicaros v Commercial Images (Aust) Pty Ltd [2022] QSC 83.

Background

Mr Verschoyle was a director of Commercial Images (Aust) Pty Ltd (In Liquidation) (Company).
On 31 October 2017, the Supreme Court appointed a Provisional Liquidator to the Company. The Provisional Liquidator was subsequently appointed Liquidator of the Company.

On 23 July 2018, the Provisional Liquidator filed an application for approval of his remuneration by the Court.
Mr Verschoyle, together with another objector, PAK Law, filed appearances in the remuneration application.
Mr Verschoyle and PAK Law objected to $152,831 of the $233,891.37 in remuneration claimed by the Provisional Liquidator.

On 21 November 2018, Mr Verschoyle and PAK Law filed a joint Statement of Facts, Issues and Contentions which included allegations that the Provisional Liquidator had:

  1. contravened sections 180, 182 and 579 of the Corporations Act 2001;

  2. breached his fiduciary duties;

  3. acted in a way which was "self-serving to the interests of [the Provisional Liquidator], by way of extending his appointment in the Provisional Liquidation of the Company to maximise his fee-earning capacity"; and

  4. "failed to make his business judgement(s) in good faith for a proper purpose as his intention was to extend the length of the liquidation of the costs of the creditors".

On 19 December 2018, the Provisional Liquidator (then Liquidator) caused the Company to commence proceedings against Mr Verschoyle for recovery of an outstanding director loan.

On 11 February 2019, Mr Verschoyle filed a defence in District Court proceeding which asserted that, if he was successful in opposing the remuneration application, it would not be necessary for him to repay his director loan.

In February 2019, the New South Wales Law Society appointed a receiver and manager to PAK Law, and it was subsequently deregistered. Mr Verschoyle was the only active objector for the remainder of the proceeding.

On 13 October 2021, the determination of the remuneration application was listed for a three-day trial commencing 13 December 2021.

On 3 December 2021, Mr Verschoyle's solicitor informed the Provisional Liquidator's solicitor that Mr Verschoyle no longer opposed the remuneration application.  This implied (as the Court ultimately found) that he did not intend to pursue the allegations against the Provisional Liquidator made in the context of the remuneration application.

The Provisional Liquidator sought an order that Mr Verschoyle pay his costs of responding to Mr Verschoyle's objections. The costs application was listed for hearing before Brown J on 15 December 2021.

At the commencement of the hearing, prior to the costs submissions, the Provisional Liquidator's remuneration was approved in full.

A precedent set to benefit external administrators

It is a well-established rule that a costs order will not usually be made against an objector who unsuccessfully opposes an external administrator's remuneration application. This rule preserves the ability of creditors and contributories to hold the appointee to account for the costs incurred in an external administration.

However, where an objector moves from contradictor to adversary, it opens the door to a costs order if the objector cum adversary is entirely unsuccessful in opposing the external administrator's remuneration.

In the present case, Brown J found that:

"I am…satisfied that costs should be ordered to be paid by Mr Verschoyle given his pursuit of serious allegations which were abandoned on the basis that he conducted himself as an adversary in these proceedings and that raises exceptional circumstances which justify the making of a costs order against Mr Verschoyle on a standard basis."

The Court ordered that Mr Verschoyle pay the Provisional Liquidator's costs of and incidental to Mr Verschoyle's objections from the date that the Statement of Facts, Issues and Contentions was filed together with the Provisional Liquidator's costs of the hearing.

This decision is an important precedent which will benefit external administrators where a disgruntled creditor or contributory is seen to become an adversary and unsuccessfully objects to an administrator's remuneration.

The case also serves as confirmation that it is not generally open to an objector to challenge commercial decisions made by an external administrator in the course of an administration.

 

(See Michaela Manicaros v Commercial Images (Aust) Pty Ltd [2022] QSC 83)

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2022.

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